Emerging Markets Point The Way For Bitcoin Adoption

The price of Bitcoin crashed in 2018 and entered a bear market, leaving many to question anew whether widespread adoption of the decentralized digital asset is feasible a decade after its inception. But emerging markets, especially those suffering financial crises, point the way for Bitcoin to fulfill its promise as an alternative to fiat currencies controlled by central banks.

From Venezuela to Turkey, Cyprus to Argentina, I have researched and traveled to experience first-hand how cryptocurrencies can be a life-saver amid economic meltdown -- and present an opportunity for Bitcoin’s rebound.

Bitcoin itself was born as a response to the global financial crisis that revealed severe weaknesses in our traditional monetary systems. That crisis may have faded into history, but spikes in cryptocurrency adoption in emerging markets remind us that the ultimate lesson from Bitcoin -- and the alternative coins it has spawned -- remains valid: money is broken.

Despite the price plunge in about a year from a high around $20,000 to as low as $3,000 in December, active crypto users doubled in 2018, according to Cambridge’s Global Cryptoasset Benchmarking Study estimates. What is most interesting is that most of this growth appears to be taking place outside the industrialized world. A recent analysis of transaction volumes at peer-to-peer exchange LocalBitcoins revealed that, when weighted by population size, cryptocurrency usage was most prevalent in developing countries that have lived through severe monetary turmoil such as Russia, Nigeria and Venezuela.

Indeed, multiple sources make clear that digital payments, including crypto-currencies “are experiencing a boom, driven by developing markets” – and several African nations in particular. That was the conclusion of the World Payments Report 2018, compiled by French banking group BNP Paribas and IT consultancy Capgemini.

And beyond the raw statistics, the evidence on the ground highlights how crypto has momentum in emerging markets.

Huge billboards on the highways of Caracas, Venezuela’s capital, promote a lesser-known cryptocurrency with the boast: “Dash. It’s more than money.”

Venezuela’s currency crisis has offered a unique use case for real-world cryptocurrency adoption. Capital controls, a vast unbanked population, and eye-watering hyperinflation of up to 1 million percent have turned Venezuelans on to crypto. That has provided an opportunity for Dash, the No. 15 cryptocurrency by market cap, to penetrate the imploding economy. From late-night bars to fast food chicken restaurants, Venezuelans now use cryptocurrency rather than the practically worthless local Bolivar currency.

The situation is similar in Turkey, where roughly one in five Turks own cryptocurrency -- compared with less than one in 10 in the neighboring European Union. Last summer’s lira crisis, and the country’s youthful, tech-savvy have provided an ideal proving ground in the search for alternatives to fiat currency.

When a central bank devalues a currency, or worse, prevents bank withdrawals savings, it is easy to see why cryptocurrencies are gaining a foothold in unstable economies. So it should be no surprise that, on the heels of a devastating 2012-2013 financial crisis, Cypriots have an appetite for exploring alternatives to fiat currency and the island has emerged as one of the most progressive countries for crypto. The University of Nicosia was one of the world’s first institutions to offer a degree in digital currencies and accept payment in Bitcoin.

User Experience Is Key to Adoption

Put simply: in crisis-hit developing countries, alt-coin volatility still beats fiat instability, meaning citizens are willing to go the extra mile in educating themselves about crypto.

Still, a major barrier to adoption remains -- the user experience. It is a challenge to onboard customers who are unfamiliar with the specialized digital wallets and confusing private keys and who are uneducated in managing money beyond a traditional banking system.

Here, the crypto industry can learn from the successes of other pioneering digital payments programs. In China, Alipay and WeChat Pay are ubiquitous nowadays. But their progress was by no means automatic. Alibaba and Tencent deployed armies of people to educate and market their products street by street, store by store, helping potential customers overcome the perception that learning to use a new technology is a chore. They also offered rewards to users, deploying a strategy that had earlier brought Paypal its own success in disrupting an established financial industry. Crypto must pay the same level of attention to creating a winning user experience.

Some trailblazing companies are willing to leverage the cryptocurrency opportunity in emerging markets. One of the biggest benefits of increased adoption is that crypto companies acquire the market insights, the know-how, and the incentive to develop tools to make transactions easier for their users.

This month, CoinText launched relatively simple offline SMS crypto transactions in the Philippines, a major country for cross-border remittances. The system has already been adopted in troubled economies such as Ukraine, Turkey, Argentina, and the Palestinian territories.

Dash is a perfect example in Venezuela. In November, it launched the Dash Text, a technology partnership that allows cryptocurrency transactions through SMS messaging. More than half of the 3,000-plus merchants worldwide who accept dash (DASH) are in Venezuela, and an additional 200 join the network every week.

The country also provides an example of how globalization works in crypto in much the same way as in other industries -- and heralds further penetration potential. As hundreds of thousands of Venezuelans flee across the border, neighbor Colombia has witnessed its own surge in crypto adoption: a 25 percent increase in active digital wallets over the course of 2018.

Adoption in emerging markets could be the next big driving force for a Bitcoin recovery. The difference is that, unlike in previous years, price gains will be driven by real adoption and demand, not just speculation -- and that is healthier and more sustainable.

Bitcoin may have suffered an annus horribilis in 2018. But embattled emerging markets are ready to embrace its promise as a complement to fiat currencies. The crypto industry must capitalize on this opportunity by focusing on user adoption and help make 2019 the year of the Bitcoin rebound.

Chance Du is a venture capitalist investing in blockchain technology empowering new economies. She is the founding partner of Coefficient Ventures.